10-Q - Quarterly report [Sections 13 or 15(d)] | XBRL INSTANCE FILE
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Current Operations and Background — AuraSource, Inc. (“AuraSource” or “Company”) focuses on the development and production of environmentally friendly and cost effective industrial energy and fuel used for industrial applications. AuraCoal, AuraSource’s core technology, includes ultrafine grinding and impurities removal processes. Initial industrial applications of AuraSource technology are ultra-fine coal water mixture for heavy oil substitution, and low grade iron ore fine and slimes beneficiation. AuraSource formed AuraSource Qinzhou Co. Ltd. (“Qinzhou”), a wholly owned subsidiary in China, to acquire these types of Hydrocarbon Clean Fuel (“HCF”) technologies, performing research and development (“R&D”) related to the reduction of harmful emissions and energy costs for HCF technology and products based on this technology, licensing HCF technology to third parties and selling services and products derived from this technology. Currently we have developed two patent pending technologies: 1) ultrafine grinding and 2) ultrafine separation.
There can be no assurance we will be able to carry out our development plans for our HCF technology, including AuraCoal and AuraFuel. Our ability to pursue this strategy is subject to the availability of additional capital and further development of our HCF technology. We also need to finance the cost of effectively protecting our intellectual property rights in the United States (“US”) and abroad where we intend to market our technology and products.
Going Concern — The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses from operations since its inception and has an accumulated deficit of $9,072,463 at September 30, 2013. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined. The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.
Basis of Presentation and Principles of Consolidation — The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.
The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2013 included in our Annual Report on Form 10-K. The results of the three and six months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year ending March 31, 2014.
Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.
Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.
Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.
Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entity’s whose functional currency is not in US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.
Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three and six months ended September 30, 2013 and 2012 because their effect is anti-dilutive.
Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash. The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.
Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.
The standard describes three levels of inputs that may be used to measure FV:
| Level 1: | Quoted prices in active markets for identical or similar assets and liabilities. | |
| Level 2: | Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities. | |
| Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities. | |
The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.
Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and six months ended September 30, 2013. These reclassifications had no effect on reported net loss or stockholders’ equity.
Recent Accounting Pronouncements – There were no significant changes in the Company’s critical accounting policies and estimates during the three and six months ended September 30, 2013 compared to what was disclosed in the Company’s Annual Report on Form 10-K for the year ended March 31, 2013.
Going Concern — The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses from operations since its inception and has an accumulated deficit of $9,072,463 at September 30, 2013. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might be necessary should the Company be unable to continue its existence. The recovery of the Company’s assets is dependent upon continued operations of the Company. In addition, the Company's recovery is dependent upon future events, the outcome of which is undetermined. The Company intends to continue to attempt to raise additional capital, but there can be no certainty such efforts will be successful.
Basis of Presentation and Principles of Consolidation — The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and include the accounts of AuraSource and its subsidiary, Qinzhou. All significant intercompany transactions and balances were eliminated in consolidation.
The unaudited consolidated financial statements were prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with US GAAP was omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended March 31, 2013 included in our Annual Report on Form 10-K. The results of the three months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year ending March 31, 2014.
Use of Estimates — The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Equivalents — We consider investments with original maturities of 90 days or less to be cash equivalents.
Income Taxes — The Company accounts for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes.” Deferred tax assets and liabilities are recognized to reflect the estimated future tax effects, calculated at currently effective tax rates, of future deductible or taxable amounts attributable to events that have been recognized on a cumulative basis in the financial statements. A valuation allowance for a deferred tax asset is recorded when it is more likely than not that some portion of the deferred tax asset will not be realized.
Stock-Based Compensation — The Company recognizes the cost of employee services received for an award of equity instruments in the consolidated financial statements over the period the employee is required to perform the services.Foreign Currency Transactions — The Company recognizes foreign currency gains and losses in other income (expense) on the accompanying statement of operations. Foreign currency gains and losses arise as the Company conducts business with other entities whose functional currency are not US dollars. Generally, these gains and losses are recorded at an exchange rate difference between the foreign currency and the functional currency that arises between the transaction date and the payment date.
Net Loss Per Share — The Company computes basic and diluted net loss per share by dividing the net loss available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Common equivalent shares arising from stock options and warrants were excluded from the computation of basic and diluted earnings per share, for the three and six months ended September 30, 2013 and 2012 because their effect is anti-dilutive.
Financial Instruments and Fair Value of Financial Instruments — Our financial instruments consist of cash, accounts payable and notes payable. The carrying values of cash, accounts payable and notes payable are representative of the fair values due to their short-term maturities. We measure the fair value (“FV”) of financial assets and liabilities on a recurring basis. FV is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FV measurements are to be considered from the perspective of a market participant that holds the asset or owes the liability. We also establish a FV hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring FV.
The standard describes three levels of inputs that may be used to measure FV:
| Level 1: | Quoted prices in active markets for identical or similar assets and liabilities. | |
| Level 2: | Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or similar assets and liabilities. | |
| Level 3: | Unobservable inputs that are supported by little or no market activity and that are significant to the FV of the assets or liabilities. | |
The Company evaluates embedded conversion features within convertible debt under ASC Topic 815, “Derivatives and Hedging,” to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at FV with changes in FV recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC subtopic 470-20, “Debt with Conversion and Other Options,” for consideration of any beneficial conversion feature.
NOTE 3 – DUE FROM AFFILIATE
As of September 30, 2013 and March 31, 2013, an affiliated party, Timeway International Ltd, holds in trust $55,612 and $54,418, respectively. This money is used to pay various day to day expenses. Timeway International Ltd is controlled by our Chief Executive Officer.
NOTE 9 ––DUE TO RELATED PARTIES
As of September 30, 2013 and March 31, 2013, $603,503 and $412,615, respectively, is owed to the officers and directors of the Company. In December 2012, the officers and directors of the Company agreed to accrue compensation for their services until such time the Company had sufficient funds to pay this liability.
NOTE 7 – INTANGIBLE ASSETS, NET
We entered into an agreement with Beijing Pengchuang Technology Development Co., Ltd. (“Pengchuang”), an independent Chinese company, to purchase 50% of the intellectual property related to ultrafine particle processing. Pengchuang developed a highly efficient and low energy consumption grinding technology, which utilizes fluid shock waves to make ultrafine particles. This technology can be applied to the coal water slurry, solid lubricant and other material grinding processes. Through a joint development and ownership agreement, AuraSource will enrich its intellectual property portfolio, enabling the further development of AuraCoal, its HCF technology. Qinzhou will utilize the particle grinding technology in its AuraCoal Qinzhou production line, as well as license it to others in non-related industries.
We issued 600,000 shares of common stock for the acquisition of certain intangibles. The shares issued in connection with $753,530 of the acquired intangibles were valued at $606,000 or $1.01 per share which was the share price on August 8, 2010, the acquisition date. The Company paid cash for the remainder of the amount due. The Company recorded $11,765 and $23,531 in amortization expense in the three and six months ended September 30, 2013, respectively, and $0 for the same periods in 2012.
NOTE 15 - STOCK OPTIONS
In January 2009, we granted 60,000 options to purchase shares of our common stock at $3.50 per share to members of our BOD. In April 2010, we granted an additional 60,000 options to purchase shares of our common stock at $1.00 per share to members of our BOD. The options vest quarterly and have an expiration period of 10 years. In April 2011, we granted an additional 60,000 options to purchase shares of our common stock at $0.75 per share to certain members of our BOD. The options vest quarterly and have an expiration period of 10 years. In February 2012, we granted an additional 2,850,000 options to purchase shares of our common stock at $0.28 per share to certain members of our BOD. The options will vest upon the Company earning $5 million in revenues. The options expire in 5 years. In April 2012, we granted an additional 60,000 options to purchase shares of our common stock at $0.27 per share to certain members of our BOD. In April 2013, we granted an additional 60,000 options to purchase shares of our common stock at $0.45 per share to certain members of our BOD. The total grant date FV of the outstanding options was $810,722.
We will record stock based compensation expense over the requisite service period, which in our case approximates the vesting period of the options. During the three and six months ended September 30, 2013 and 2012, the Company recorded $3,462, $6,924, 3,595 and $7,190 in compensation expense arising from the vesting of options, respectively. The Company assumed all stock options issued during the quarter will vest. Though these expenses result in a deferred tax benefit, we have a full valuation allowance against the deferred tax benefit.
The Company adopted the detailed method provided in FASB ASC Topic 718, “Compensation – Stock Compensation,” for calculating the beginning balance of the additional paid-in capital pool (“APIC pool”) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the income tax effects of employee stock-based compensation awards that are outstanding.
The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a 7-year constant maturity. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the last 60 days of market prices prior to the grant date. The expected life of an option grant is based on management’s estimate. The fair value of each option grant, as calculated by the BSOPM, is recognized as compensation expense on a straight-line basis over the vesting period of each stock option award.
These assumptions were used to determine the FV of stock options granted:
| Dividend yield | 0.0% | |||
| Volatility | 25% to 155% | |||
| Average expected option life | 10.00 years | |||
| Risk-free interest rate | 1.76% to 2.59% | |||
The following table summarizes activity in the Company's stock option grants for the six months ended September 30, 2013:
| Number of Shares |
Weighted Average Price Per Share | |||||||||
| Balance at March 31, 2013 | 3,090,000 | $ | 0.37 | |||||||
| Granted | 60,000 | $ | 0.45 | |||||||
| Balance at September 30, 2013 | 3,150,000 | $ | 0.37 | |||||||
The following summarizes pricing and term information for options issued to employees and directors outstanding as of September 30, 2013:
| Options Outstanding | Options Exercisable | |||||||||||||||
| Range of Exercise Prices | Number Outstanding at September 30, 2013 |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price | Number Exercisable at September 30, 2013 | Weighted Average Exercise Price | |||||||||||
| $3.50 | 60,000 | 5.75 | $3.50 | 60,000 | $3.50 | |||||||||||
| $1.00 | 60,000 | 6.75 | $1.00 | 60,000 | $1.00 | |||||||||||
| $0.75 | 60,000 | 7.75 | $0.75 | 60,000 | $0.75 | |||||||||||
| $0.28 | 2,850,000 | 3.88 | $0.28 | - | - | |||||||||||
| $0.27 | 60,000 | 8.75 | $0.27 | 60,000 | $0.28 | |||||||||||
| $0.26 | 60,000 | 9.75 | $0.26 | 60,000 | $0.26 | |||||||||||
| $0.45 | 30,000 | 5.00 | $0.45 | 30,000 | $0.45 | |||||||||||
| Balance at September 30, 2013 | 3,180,000 | 4.17 | $0.37 | 330,000 | $1.30 | |||||||||||
| Number of Shares |
Weighted Average Price Per Share | |||||||||
| Balance at March 31, 2013 | 3,090,000 | $ | 0.37 | |||||||
| Granted | 60,000 | $ | 0.45 | |||||||
| Balance at September 30, 2013 | 3,150,000 | $ | 0.37 | |||||||
| Options Outstanding | Options Exercisable | |||||||||||||||
| Range of Exercise Prices | Number Outstanding at September 30, 2013 |
Weighted Average Remaining Contractual Life |
Weighted Average Exercise Price | Number Exercisable at September 30, 2013 | Weighted Average Exercise Price | |||||||||||
| $3.50 | 60,000 | 5.75 | $3.50 | 60,000 | $3.50 | |||||||||||
| $1.00 | 60,000 | 6.75 | $1.00 | 60,000 | $1.00 | |||||||||||
| $0.75 | 60,000 | 7.75 | $0.75 | 60,000 | $0.75 | |||||||||||
| $0.28 | 2,850,000 | 3.88 | $0.28 | - | - | |||||||||||
| $0.27 | 60,000 | 8.75 | $0.27 | 60,000 | $0.28 | |||||||||||
| $0.26 | 60,000 | 9.75 | $0.26 | 60,000 | $0.26 | |||||||||||
| $0.45 | 30,000 | 5.00 | $0.45 | 30,000 | $0.45 | |||||||||||
| Balance at September 30, 2013 | 3,180,000 | 4.17 | $0.37 | 330,000 | $1.30 | |||||||||||
NOTE 16 - LOSS PER SHARE
The following table sets forth common stock equivalents (potential common stock) for the three and six months ended September 30, 2013 and 2012 not included in the loss per share calculation above because their effect would be anti-dilutive for the period indicated:
| 2013 | 2012 | |||||||
| Weighted average common stock equivalents | ||||||||
| Non-Plan Stock Options | 3,180,000 | 3,090,000 | ||||||
NOTE 5 – DEPOSITS AND OTHER CURRENT ASSETS
Deposits and other current assets as of September 30, 2013 and March 31, 2013, respectively, were comprised of the following:
| September 30, 2013 | March 31, 2013 | |||||||
| (audited) | ||||||||
| Shipping deposits | 20,205 | 96,254 | ||||||
| Mineral reserve deposits | 525,000 | 525,000 | ||||||
| Prepaid expenses | 6,904 | — | ||||||
| Balance at September 30 and March 31, 2013 | $ | 552,109 | $ | 621,254 | ||||
On January 25, 2013, the Company entered into a broker transportation agreement with M&L Logistics, Inc. to arrange transportation of minerals for various carriers, consignors or consignees for one year. This agreement can be terminated at any time upon notice by either party. As of September 30, 2013 and March 31, 2013, these deposits were recorded as shipping deposits.
On February 9, 2012, we entered into an agreement with Gulf Coast Holdings, LLC (“GCH”), an affiliate with over 10% voting rights, to reserve export ready one million tons of 64% Fe higher content iron ore, 13 million tons of 45% grade lower content iron ore and two million tons of manganese ore, at $1.00 per ton. In lieu of cash, GCH agreed to accept shares of the Company common stock at $1.00 per share. In conjunction with this agreement, we issued five million shares of our common stock immediately and agreed to issue 11 million upon the successful completion of the first customer order of over $5 million (the “Mineral Deposit Shares”) to GCH or its assigns. On February 19, 2012, GCH assigned 100% of its interest in the Mineral Reserve Agreement to Hong Kong Minerals Holdings, Ltd. (“HKMHL”). Success shall be defined as customer acceptance of order and final payment. To the extent a successful order does not occur, the unvested Mineral Deposit Shares shall be returned to our treasury and cancelled. The Company has no material prior relationship with GCH or HKMHL other than what is set forth above. To date, the Company has not achieved $5 million in revenue, as such the 11 million shares is being held by the Company. As of September 30, 2013, the Company has not obtained possession of the above noted minerals. As such, the issuance of the shares have been recorded as a charge to additional paid in capital and a credit to common stock at par value of $0.001 per share for a total of $16,000. GCH has the right to designate two members on the Board of Directors (“BOD”), one of whom is to be mutually agreed. To date GCH has not designated any board members. Additionally, we entered into an agreement with Gulf Coast Mining Group, LLC (“GCM”) to purchase minerals which will be delivered loose in bulk modified FOB. We entered into an agreement with GCH appointing GCH as the exclusive North American licensee for use and exploitation of our technology as it relates to applications involving precious metals in exchange for royalty payments of 5% of gross revenues. In August 2012, the Company made prepayments of $525,000 for delivery of minerals.
NOTE 2 - CONCENTRATION OF CREDIT RISK
We maintain our cash balances in financial institutions that from time to time exceed amounts insured by the FDIC (up to $250,000, per financial institution as of September 30, 2013). As of September 30, 2013 and March 31, 2013, our deposits did not exceed insured amounts. We have not experienced any losses in such accounts and we believe we are not exposed to any credit risk on cash.
Currently, we maintain a bank account in China. This account is not insured and we believe is exposed to credit risk on cash.
NOTE 6 – FIXED ASSETS, NET
Fixed assets, net consisted of the following:
| September 30, | March 31, | |||||||
| 2013 | 2013 | |||||||
| (audited) | ||||||||
| Office equipment | $ | 2,954 | $ | 2,954 | ||||
| Vehicles | 147,390 | 147,390 | ||||||
| Equipment | 391,118 | 391,118 | ||||||
| Total fixed assets | 541,462 | 541,462 | ||||||
| Less: accumulated depreciation | (176,175 | ) | (95,758 | ) | ||||
| Total fixed assets, net | $ | 365,287 | $ | 445,704 | ||||
The depreciation expense for the three and six months ended September 30, 2013 was $40,208 and $80,418, respectively. Depreciation expense for the three and six months ended September 30, 2012 was $7,369 and $7,616 respectively. The Company attributed $65,186 and $0 of such depreciation expense in 2013 and 2012, respectively, to R&D expense.
NOTE 10 – DEFERRED REVENUE
As of September 30, 2013 and March 31, 2013, the deferred revenue was zero and $63,754, respectively. This represented amount received from a customer for an order that was completed in September 2013.
Concentration of Credit Risk — Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash. The Company maintains its cash with high credit quality financial institutions; at times, such balances with any one financial institution may exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits.
NOTE 11 – DEBT
As of September 30, 2013 and March 31, 2013, loans payable were $152,125 and $0, respectively. In June 2013, the company issued 275,783 common shares as a finance charge for the $108,382 of the borrowed amount and recorded $124,102 expense incurred in connection with the loan. The loan is due on demand.
The loans payable to related party were $95,716 and $0, respectively. In June 2013, the Company issued 162,180 common shares as a finance charge for $63,102 of related party loan and recorded $72,981 expense in connection with the loan. This loan is due on demand.
On December 31, 2012, the Company received $500,000 from Pelican Creek, LLC (Pelican Creek”), an unrelated party, and recorded the corresponding note as a current liability on the balance sheet. As an inducement to receive this loan, the Company issued 1,250,000 shares of its common stock to Pelican Creek. The FV of the shares issued was $812,500 valued at $0.65 per share, using the closing price on the effective date of the agreement. See Note 13, Stock Issuance, for further details. The coupon interest on this note accrues daily on the outstanding principal amount at 8% per annum. As such, as of September 30, 2013, the Company accrued interest of $30,000 and recorded it as part of the accounts payable and accrued expenses account. The Company finalized the terms and conditions of this payment on June 7, 2013.
NOTE 12 – CONVERTIBLE NOTES PAYABLE
On April 5, 2013 the Company entered into a Securities Purchase Agreement (“SPA”) with Asher Enterprises, Inc. (“Asher”). Under the terms of the SPA, the Company issued to Asher a convertible promissory note of $63,000. The note had a nine month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had beneficial conversion feature (“BCF”) of $40,279 and was recorded in the balance sheet at face value less the unamortized BCF. On September 20, 2013 the Company paid off this note for $87,345.
On July 19, 2013 the Company entered into an SPA with Asher. Under the terms of the SPA, the Company issued to Asher a convertible promissory note of $37,000. The note had a nine month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had BCF of $23,975 and was recorded in the balance sheet at face value less the unamortized BCF.
On September 20, 2013 the Company entered into an SPA with Todd Andis (“Andis”). Under the terms of the SPA, the Company issued to Andis a convertible promissory note of $90,000. The note had a six month maturity date from issuance. The note bears interest at 8%. Any principal or interest on this note which is not paid when due shall bear interest at 22% from the due date until paid. The conversion price shall equal the variable conversion price, 61% multiplied by the market price (representing a discount rate of 39%). Market price is the average of the lowest three trading prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date. This note had BCF of $57,541 and was recorded in the balance sheet at face value less the unamortized BCF.
At September 30, 2013, convertible notes payable consisted of the following:
| September 30, 2013 | ||||
| Convertible note payable - Asher, 8% interest, due in 2014 | $ | 37,000 | ||
| Convertible note payable - Andis, 8% interest, due in 2014 | 90,000 | |||
| Less: unamortized discount of BCF - Asher | (17,657 | ) | ||
| Less: unamortized discount of BCF - Andis | (54,044 | ) | ||
| Convertible notes payable, net of BCF | $ | 55,299 | ||
The amortization expense on the discount of BCF for these notes for the three and six months ended September 30, 2013 was $18,542 and $31,299 and was recorded as interest expense. The accrued interest as of September 30, 2013 was $797.
| September 30, 2013 | ||||
| Convertible note payable - Asher, 8% interest, due in 2014 | $ | 37,000 | ||
| Convertible note payable - Andis, 8% interest, due in 2014 | 90,000 | |||
| Less: unamortized discount of BCF - Asher | (17,657 | ) | ||
| Less: unamortized discount of BCF - Andis | (54,044 | ) | ||
| Convertible notes payable, net of BCF | $ | 55,299 | ||
| September 30, | March 31, | |||||||
| 2013 | 2013 | |||||||
| (audited) | ||||||||
| Office equipment | $ | 2,954 | $ | 2,954 | ||||
| Vehicles | 147,390 | 147,390 | ||||||
| Equipment | 391,118 | 391,118 | ||||||
| Total fixed assets | 541,462 | 541,462 | ||||||
| Less: accumulated depreciation | (176,175 | ) | (95,758 | ) | ||||
| Total fixed assets, net | $ | 365,287 | $ | 445,704 | ||||
NOTE 14 – STOCK ISSUANCE
During the year ended March 31, 2013, the Company issued 1,250,000 shares of common stock in connection with finance charges to enter a note payable agreement in the amount of $500,000 and 817,250 shares of common stock as interest for delaying repayment of the balances due to related parties for services rendered. The total expense for such common shares issued during the year ended March 31, 2013 was $1,261,988. The Company issued 612,500 shares for $0.40 per share. The company recorded net proceeds from the sale of these shares of $245,000. On June 11, 2012, the BOD granted 60,000 shares for services in connection with fund raising activities, all of which vested immediately and were valued at $13,200.
During the six months ended September 30, 2013, the Company issued 437,963 shares of common stock as finance charge for loans to related and unrelated parties. For further details refer to Note 10, Loans Payable. On April 12, 2013, the Company agreed to issue 1,250,000 shares as a settlement for an advance from a customer in amount of $500,000.
NOTE 4 – INVENTORY
In the three months ended June 30, 2012, the Company agreed to purchase certain minerals from HKMHL for $50,000. The $10,000 as of March 31, 2013 represents a payment towards that purchase. In the three months ended September 30, 2013, the Company purchased additional inventory for $32,580.
NOTE 13 – CUSTOMER ADVANCES
As of March 31, 2013, we had received $500,000 and $70,000 from two customers, respectively, to be applied towards the purchase of various minerals by those customers. As of September 30, 2013, the balance of such advances was $70,000. On April 12, 2013, the Company issued 1,250,000 shares of common stock for the settlement of the $500,000 customer advance.
Reclassifications — Certain reclassifications were made to the prior period amounts disclosed in the consolidated financial statements to conform to the presentation form the three and six months ended September 30, 2013. These reclassifications had no effect on reported net loss or stockholders’ equity.